Can Obama, Lee sell lawmakers on US-South Korea free trade deal?

Just as hopes were fading for the US-South Korea Free Trade Agreement, negotiators came to terms on prying open the South Korean motor vehicle market to placate angry US carmakers and labor unions.

ByDonald Kirk, CorrespondentDecember 5, 2010

South Korean Minister of Trade Kim Jong- hoon shows documents during a news conference at the main office building of the ministry in Seoul, Sunday. The United States and South Korea welcomed a free trade deal after a three-year delay which US President Barack Obama said would boost exports to South Korea by $10 billion and support much-needed American jobs.

Seoul, South Korea — The controversial Korea-US Free Trade Agreement faces tough hurdles in both South Korea’s National Assembly and the US Congress now that negotiators have forged a compromise firmly endorsed by the presidents of the United States and South Korea.

Just as hopes were fading for what’s known here by the acronym “KORUS FTA,” negotiators came to terms on prying open the South Korean motor vehicle market, to a carefully limited degree, to placate angry US motor vehicle makers and labor unions.

“I had about given up hope,” says James Rooney, chairman of Market Force, an investing and consulting firm here. “It seemed to me they weren’t going to push it through.”

With the agreement now ready for ratification, says Mr. Rooney, “both countries have so much to gain by closer industrial cooperation” so “let's get on with it and stop the political nonsense."

A daunting task

That may not be easy. President Obama and South Korea’s president, Lee Myung-bak, face the daunting task of convincing legislators in Washington and Seoul to ratify a deal that proponents say would do away with 95 percent of tariffs in five years and increase US exports to South Korea by $10 billion a year.

South Korea's main opposition Democratic Party, for instance, planned a major national campaign against ratification.

Park Jie-won, Democratic Party leader in Korea’s National Assembly, accused the government of having made “too many concessions” on “people’s lives and safety” by easing stringent requirements on motor vehicles.

South Korea’s trade minister, Kim Jong-hoon, however, denied having made too many concessions, calling it a “win win” for both countries.”

Happy presidents

Mr. Obama couched the agreement, the biggest US trade deal since the signing of the North American Free Trade Agreement with Canada and Mexico in 1994, as a breakthrough in American efforts to overcome its yawning trade deficit and regain lost respect as a top trading power. With that goal in mind, he said the agreement “shows the US is willing to lead and compete in the global economy” while “opening new markets around the world to products that are made in America."

Mr. Lee, under fire from critics for appearing weak and vacillating in dealing with North Korea’s artillery barrage on a small South Korean island in the Yellow Sea on Nov. 23, said the agreement “lays the groundwork for a 'win-win' relationship by reflecting the national interests of Korea and the United States in a balanced manner."

Both presidents seemed particularly happy since negotiators had failed to come to terms on motor vehicles when Obama was here for the summit of leaders of the Group of 20 (G20) leading economic powers last month.

That failure struck some observers as the death knell of the deal, worked out in 1-1/2 years of grueling negotiations and finally concluded in June 2007.

Perhaps the greatest irony is that Obama, as a senator from Illinois, and Secretary of State Hillary Rodham Clinton, then a senator from New York, had opposed the agreement for fear that a flood of South Korean exports would hurt US manufacturers and cost jobs. Another irony is that Obama’s conservative predecessor, George W. Bush, and the conservative Lee’s left-leaning predecessor, Roh Moo-hyun, had both strongly favored the agreement.

Main terms of the deal

Although South Korean negotiators repeatedly said they would not “revisit the text” of that deal, they finally had to accept a “supplementary” agreement. Its main terms:

Opening South Korea to importing 25,000 cars a year from each US motor vehicle manufacturer without demanding they meet detailed South Korean rather than American safety standards

Cutting tariffs on US imports from 8 to 4 percent for five years and then eliminating them while the US retains its 2.5 percent tariff for the same period.

Retaining the 25 percent US tariff on trucks for eight years before dropping the tariff after 10 years

Cutting South Korea’s tariff on electric cars and hybrids from 8 to 4 percent and ending the tariff after five years

Retaining a tariff on pork until 2015 rather than 2013 and continuing to bar import of US beef from cattle more than 30 months old.

Ford Motor CEO Alan Mulally, said Ford, which had previously warned against the deal, now “applauds the outlines” of the agreement. Its revised provisions, he said, give “greater confidence that we will be able to better serve our Korean customers. He thanked the efforts of “the Obama administration and Congress to improve this agreement, and open the Korean auto market."

Where's the beef?

But the failure to open up the import of American beef was sure to disappoint some members of Congress, notably Sen. Max Baucus (D) of Montana, one of the strongest foes of the agreement.

The beef issue, though, has diminished in importance since US beef has captured 35 percent of the beef imports, in strong competition with Australian beef, since mass demonstrations shook Seoul for several months in 2008 after mad cow disease was wrongly reported found in an American cow.

Whether the agreement will help redress the huge US deficit with South Korea, however, remains far from certain. In two-way trade last year totaling $67.8 billion, the US imported products valued at $39.2 billion from Korea while exporting $28.6 billion. US carmakers sold vehicles worth $161 million to Korean buyers in 2009 while Korea’s manufacturers, led by Hyundai Motor Co. and its sister, Kia Corp., earned $5.7 billion from 2009 exports to the US.

Proponents feeling good

Advocates, however, are convinced the agreement will work out well for both South Korea and the US.

“The KORUS FTA will add an important third pillar to our already strong bilateral political and military alliance,” says the chamber’s president, Amy Jackson. “Today’s announcement is great news for all of us, in particular for US and Korean companies and workers who will soon be able to reap the many benefits that this agreement will bring to both countries.”